HBS Case Study on Coors (1992)

Adolph Coors in the Brewing Industry

“Rarely in Adolph Coors Company’s 113-year history has there been a year with as many success stories as 1985.” Coors’s annual report for 1985 went on to cite records set by the company’s Brewing Division. In a year when domestic beer consumption was flat, Coors’s beer volume had jumped by 13% to a new high of 14.7 million barrels. And its revenues from beer had topped $1 billion for the first time in the company’s history.

The Brewing Division accounted for 84% of Coors’s revenues in 1985, and over 100% of its operating income. Although Coors had diversified into several businesses, including porcelain,food products, biotechnology, oil and gas, and health systems, Chairman Bill Coors acknowledged that for the foreseeable future, the company’s fortunes were tied to brewing.

The strategy of the Brewing Division had changed drastically over the 1975-1985 period.The changes continued: in a decision that the company billed as “the most significant event of 1985 and perhaps our history,” Coors announced plans to build its second brewery in Virginia’s Shenandoah Valley.

The first section of this case describes competition in the U.S. brewing industry and its structural consequences. The next two sections describe Coors’s position within the industry, and the plans that it had announced for its second brewery.

Competition in the U.S. Brewing Industry

In 1985, Americans spent $38 billion to buy 183 million barrels of beer. Of their expenditure, 12% was applied to taxes, 42% to retailers’ margins, 12% to wholesalers’ margins, and the remainder to beer at (net) wholesale prices. Domestic producers supplied 96% of the market at an average wholesale price of $67 per barrel. The rest of this section describes the ways in which the major U.S. brewers made and sold beer, and the industry structure that had resulted.

Procurement

Raw materials cost major brewers over half their net revenues. Agricultural in puts accounted for a quarter or a fifth of total raw material costs, and packaging inputs for the remainder. The key agricultural inputs were malt (germinated and dried barley), a starchy cereal such as rice or corn, hops and yeast. Large, relatively efficient markets existed for all these commodities. A brewer with a single, efficiently sized plant—about 3% of the U.S. market in1985—could buy them on the best terms available.